Major American airlines could face significant financial pressure as oil prices climb following recent military strikes involving the U.S., Israel, and Iran. The carriers have left themselves exposed to these price swings after abandoning fuel cost protection strategies years ago.
Aviation fuel costs have jumped 15% over the past week, adding another burden to an industry already struggling with conflict-related disruptions that have led to more than 20,000 canceled flights and stranded thousands of travelers.
After labor expenses, fuel represents airlines’ second-biggest cost, usually making up 20% to 25% of their operating budgets. Most U.S. carriers stopped using hedging strategies over the last twenty years to protect against fuel price volatility. Southwest Airlines, once a regular user of these financial tools, discontinued the practice in 2025, describing it as costly and unreliable. Meanwhile, international competitors like Air France-KLM and Cathay Pacific continue using these protective measures.
Hedging allows airlines to guard against fuel cost spikes through specialized financial contracts. However, these strategies can backfire when prices drop, forcing carriers to pay above-market rates through swap agreements—a situation that previously hurt U.S. airlines.
Without these protections, airlines now face direct exposure to sustained increases in jet fuel prices, which currently average $2.83 per gallon according to the Oil Price Information Service. Spot fuel trading at the U.S. Gulf Coast reached $4.12 per gallon Thursday, marking the highest level since June 2022, based on data from Platts, an S&P Global Energy division.
The financial impact varies by carrier size. Delta Air Lines reported in regulatory documents that each one-cent increase in jet fuel costs per gallon raises their annual fuel expenses by approximately $40 million. American Airlines faces about $50 million in additional costs per cent increase, while Southwest sees roughly $22 million in extra expenses.
An American Airlines representative explained that their fuel consumption runs about double Southwest’s amount, “which is a product of our fleet size and overall level of flying vs. Southwest.”
TD Cowen analysts projected Monday that United Airlines’ earnings per share for the March quarter could range between just 5 and 22 cents at current fuel prices, falling well below United’s January forecast of $1 to $1.50 per share. United declined to provide comment.
Reuters calculations show these four major U.S. carriers could collectively face $5.8 billion in additional fuel expenses if current elevated prices persist throughout the year, reversing several years of declining fuel costs.
JetBlue, Delta, and Alaska Airlines did not respond to requests for comment.
The actual impact on profit margins will depend on how long the conflict continues and each airline’s ability to offset rising expenses. Some carriers may successfully raise ticket prices, particularly those serving more premium passengers and business travelers.
Morgan Stanley analyst Ravi Shanker stated, “I’m pretty convinced the airlines are going to remain unhedged in the U.S. and look to pass through the costs to end consumers (only if needed in the event of sustained fuel inflation) instead.”
Shanker noted that European airlines’ ability to reduce fuel costs will depend on their hedging prices, considering jet fuel’s price volatility over the past year.
Airlines serving highly competitive domestic routes with less premium revenue, such as Alaska Air and JetBlue, may struggle more with cost increases. American Airlines, which serves many price-conscious leisure travelers and operates fuel-intensive short routes with frequent takeoffs and landings, also faces challenges.
Delta maintains some protection through its subsidiary-owned Pennsylvania refinery, which processes about 190,000 barrels daily—covering nearly three-quarters of Delta’s fuel needs. This ownership shields the company from refining margins that other companies would charge for converting crude oil into jet fuel.
However, this refinery doesn’t protect Delta from crude oil price fluctuations. Benchmark U.S. crude exceeded $81 per barrel Thursday, reaching its highest closing price since July 2024.
